9:15 p.m. | Updated
Time Warner is in talks to shed much of Time Inc., the country’s largest magazine publisher and the foundation on which the $49 billion media conglomerate was built, according to people involved in the negotiations.
Time Warner is in early discussions with the Meredith Corporation to put most of Time Inc.’s magazines — including People, InStyle and Real Simple — into a separate, publicly traded company that would also include Meredith titles like Better Homes and Gardens and Ladies’ Home Journal.
The new company would then borrow money to pay a one-time dividend back to Time Warner, essentially turning what appears to be a corporate spinoff into a sale. The figure being discussed is $1.75 billion, according to the people involved in the negotiations, who requested anonymity to discuss private conversations publicly.
The deal under consideration is one of several options Time Warner is exploring to reduce its troubled publishing unit. As part of the agreement, existing shareholders in Time Warner and Meredith would receive stakes in the new venture. That venture would be primarily a women’s magazine company, expanding on Meredith’s stable of lifestyle publications with strong female readership, especially in the Midwestern United States.
Time Warner would continue to control the news-based magazines Time, Fortune and Sports Illustrated, along with Money magazine. Another person involved in the negotiations said Meredith did not want those magazines — including the standard-bearer Time, which is expensive to operate and reported a 23.2 percent decline in newsstand sales in the second half of 2012 — to be part of the deal.
Spokesmen for Time Warner and Meredith declined to comment. The new company would allow both Meredith and Time Warner to insulate their other assets from the troubled magazine business. It would also give Time Warner the benefit of a large payday in the form of a dividend without having to resort to an outright sale, which could have much harsher tax implications.
Like Time Inc., Meredith has a long and lucrative history in the women’s magazine market, and both companies have emphasized consumer marketing, wringing value from their subscriber lists at every turn.
But in other ways, the joining of the two would involve some remarkable adjustments. The Time & Life Building, a “Mad Men”-era skyscraper in the middle of Midtown, has long been a symbol of Manhattan publishing. Meredith’s roots date to 1902 and the creation of Successful Farming magazine. It owns some of the country’s largest-circulation women’s magazines, but maintains popular, folksy titles like Country Life and the carpentry magazine Wood.
It is unclear whether the new company would move some former Time Inc. employees to Des Moines, where Meredith is based.
The talks come days after Time Inc. said it would lay off 6 percent of its 8,000 employees. Its overall revenue has declined roughly 30 percent in the last five years.
In recent years, Time Warner has tried to trim assets unrelated to the television and movie production business. It has divested itself of AOL, Time Warner Cable, the Warner Music Group and the Time Warner Book Group.
Jeffrey L. Bewkes, chief executive of Time Warner, has previously denied reports that he would sell or spin off Time Inc. He frequently talks about the division’s strongest brands as, essentially, cable channels, and he has mandated that Time Inc. make its magazines available on digital devices.
“They’re printing pages right now, but they’re also on electronic screens with moving pictures,” Mr. Bewkes said in an earlier interview. “A cable channel like TNT or TBS,” he added, is “pretty much the same as what People or Time or InStyle should do.”
Keeping Time, Fortune and Sports Illustrated would allow Time Warner to maintain its name and historical roots, at least until a buyer with interest in the remaining titles emerged.
“Time’s name is on the door,” said a person briefed on Mr. Bewkes’s thinking who requested anonymity to discuss private conversations. “I think Jeff feels it would be better to hang on to it and not sell it for what would be a low price.”
Jeff Zucker, the newly named president of CNN Worldwide, is said to have expressed interest in further collaborations with the newsmagazines.
Time Inc. and Meredith have a recent connection. Jack Griffin, a former Meredith executive, had a brief and stormy reign as chief of Time Inc. before Laura Lang took over in January 2012 — a tenure of less than six months that highlighted the culture clash between the companies.
Time Inc. editors “look down on Meredith as being a sleepy, Iowa-based publisher without the cutting-edge skills and abilities that they feel that they have,” said Peter Kreisky, who was a senior adviser to Mr. Griffin during his brief period at Time Inc.
Ms. Lang, previously chief executive of the digital advertising company Digitas, is an upbeat marketing executive with digital skills but no journalism experience who promptly hired Bain & Company, a Boston consultancy. In a July interview with The New York Times, Ms. Lang said: “Everyone was asking, ‘Who’s getting laid off?’ But it couldn’t be further from the truth.”
She moved aggressively to make Time Inc.’s magazines available digitally and to take advantage of consumer data. In June, the company announced that all of its magazines would be available on Apple’s newsstand.
But those moves weren’t enough to stop the industrywide tide of declining subscription and advertising revenue, prompting Time Warner executives to accelerate their exploration of ways to sell or spin off the magazines. Time Warner initiated the conversation with Meredith, said a person involved in the deal.
“In a declining business, selling today is always better than selling tomorrow,” said another person with knowledge of the deal who was not authorized to discuss the talks publicly.
Last week, Time Warner said revenue at Time Inc. had fallen 7 percent, to $967 million, while advertising revenue fell 4 percent, or $24 million. Subscriptions were flat. (Revenue at the company’s cable television channels rose 5 percent, to $3.67 billion.)
Even People, which has long helped bolster Time Inc.’s bottom line, has suffered. People’s newsstand sales declined 12.2 percent in the second half of 2012 compared with the year before, according to the Alliance for Audited Media. Its advertising pages dropped 6 percent in 2012, according to the Publishers Information Bureau.
Last month, Ms. Lang said she would cut around 480 people at an estimated cost of $60 million in restructuring fees. Magazines like Time and People asked employees to take buyouts and said they would begin layoffs if they did not meet the necessary numbers by Wednesday.
In a conference call with analysts last week, John K. Martin, chief financial and administration officer at Time Warner, said that “very challenging industry conditions weighed” on Time Inc.’s results.
Time Warner isn’t alone in feeling the pinch of a troubled publishing division. In June, News Corporation said it would split its publishing assets, including newspapers like The Wall Street Journal and The New York Post, into a publicly traded company separate from its entertainment division, which includes the highly profitable cable channels FX and Fox News. The separation is expected to be complete this summer.
In October, Barry Diller’s IAC/InterActiveCorp said it would stop publishing Newsweek and merge it with its irreverent digital news site, The Daily Beast.
Christine Haughney, Andrew Ross Sorkin and David Carr contributed reporting.
Media Decoder Blog: Time Warner Considers Spinning Off Some of Its Magazines
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